Neb. lawmaker floats idea: Taxes as an investment
LINCOLN, Neb. (AP) — A Nebraska lawmaker floated an unconventional idea Tuesday for the state tax system: Let taxpayers become investors.
Sen. Paul Schumacher, of Columbus, presented a bill that would give Nebraskans the option pay more taxes up-front, in exchange for an inflation-adjusted credit that they could use to lower their future tax liability.
Schumacher said the measure serves a double purpose: It would generate more up-front cash for roads projects, which are cheaper now than in the future, and would give savers a new place to stick their money.
"It basically allows the taxpayers to invest in Nebraska," he said.
Schumacher said the bill is aimed at residents who aren't satisfied with low-interest savings accounts, the stock market, or farmland. Residents who pay taxes beyond what they owe could apply that amount to future tax debts, with a credit adjusted for inflation and the same interest as a 10-year Treasury bill.
Taxpayers would have to wait five years to claim the credit, unless they were 62 or older. The credit would be nonrefundable, meaning a taxpayer's liability would never drop below zero. It also would impose a 10 percent "transfer fee" for anyone who claims the credit early, such as someone who moves out-of-state.
For taxpayers who die, the state would use the credit to pay down inheritance taxes and other debts owed, impose a 10 percent fee, and transfer the rest of the credit to an heir.
Schumacher presented the bill to the Legislature's Revenue Committee, which reviews tax policy. The measure comes as lawmakers prepare for a broader review of Nebraska's tax structure, following criticism that the system is outdated and fails to reflect the current state economy.
The bill's future is unclear, although several committee members credited Schumacher for his "out-of-the-box" thinking.
Schumacher acknowledged that his idea — "a self-dreamed-up, Sunday afternoon thing" — would amount to an experiment for the state. And he conceded that the program would come to "a screeching halt" once federal interest rates increase. But in the meantime, he said, the state could use it to build roads quickly, before interest rates and inflation drive up the project costs.
"If we could give our savers a little relief while they're waiting for bank interest rates to return to a more real world, then I think we've done something good," he said. "We've created wealth for the saver and the state."
Schumacher said the bill seeks to reduce the cost of roads projects. In 2011, lawmakers approved a state roads-funding bill that commits a quarter-cent of the state's 5.5-cent sales tax revenue to roads projects.
Fiscal analysts say there's no way to know how much revenue the bill would generate for the state.
A spokeswoman for the Department of Revenue pointed to a fiscal note for the bill that predicts "significant administrative costs" for the state to track the tax investments. The Legislature's Fiscal Office also predicted that the program would draw considerable interest from taxpayers.
The department also noted that the additional payments would only pay for roads, but the credit could be claimed against other tax debts. Cutting into the state's stream of income, sales and use and miscellaneous would reduce the money available in the general fund, according to the fiscal note.
Schumacher, who sits on the Revenue Committee, is the lead sponsor of a bill to create a Nebraska Tax Modernization Commission. The bill gained some prominence after Gov. Dave Heineman withdrew his tax proposal.
The bill is LB82